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Are sales taxes progressive or regressive?
Sales taxes are generally considered regressive, not progressive.
Here’s why: A sales tax is a flat rate tax that applies the same percentage to all purchases, regardless of the buyer’s income level. This means everyone pays the same tax rate when buying goods or services, regardless of income.
However, the impact of this tax is different across income levels. People with lower incomes spend a higher proportion of their income on goods and services subject to sales tax, so they end up paying a larger percentage of their income in sales tax compared to people with higher incomes. This is what makes a sales tax regressive.
In contrast, a progressive tax system, such as the federal income tax in the United States, has tax rates that increase as the taxable amount increases. This means people with higher incomes pay a higher percentage of their income in taxes compared to those with lower incomes.
It’s important to note that tax systems can involve a mix of regressive and progressive elements, and different jurisdictions may have different ways of mitigating the regressive impacts of sales taxes, such as exemptions or rebates for certain goods or for low-income households.
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